Canada needs housing investors | Financial Post

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Millicent Wong
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financial contribution

  1. property
  2. investor

If not investors, then who will pay for the maintenance and ownership of housing for millions of Canadians?

Published on July 3, 2023 • Last updated 13 hours ago • 4 minutes reading time

Millions of Canadians live in homes provided and maintained by investors. Millions of Canadians live in homes provided and maintained by investors. Photo by Jason Payne/Postmedia

Canada’s population grew by a million people last year, an unprecedented increase in scale and speed that will result in greater demand for essential services such as housing, transportation and health, and leisure.

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Increasing demographic pressures are likely to make housing affordability worse unless significant investment is made in building new housing and maintaining existing ones.

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Most Canadians would welcome more investment in housing, but some seem concerned. Examples of investor-skeptical commentary are common in academic publications, government reports, and the news media.

But real estate investors are vital to the health and growth of the real estate portfolio. For one, large-scale housing projects may not be possible without them as they provide the venture capital for the longer period of housing construction.

A typical condominium takes years to build and plan. According to reports, it can take 500 days or more to obtain building permits for high-density housing developments in Ontario. Construction could take another two to five years. Therefore, a prospective buyer may have to wait five years or more to set foot in a completed apartment after the first down payment.

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Building new homes is not only time-consuming, but also a capital-intensive process that requires hundreds of millions of dollars in investments. When investors are left out of the process, there aren’t many others willing to put up with the money needed to build, the risk-taking needed (some construction work may not start on time or on budget), and the patience to get on with it who can wait to step in years.

The end user who occupies the finished product, a condominium or a house in a new residential area, wants to avoid long waiting times, cost and price uncertainties and many other risks associated with large-scale construction. Investors accept these risks and deserve the rewards that come with them.

Taking investors out of the building equation will slow the already sluggish supply of new housing even further, ultimately hurting the very people anti-investor housing advocates are supposedly trying to help. The road to hell is paved with good intentions, they say.

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Some housing advocates oppose investors in Canada owning multiple homes. They argue that by owning multiple homes, investors limit homeownership opportunities for first-time buyers. This argument would be valid if there were no rental households in Canada.

But almost a third of all Canadians, and even a higher proportion in cities, live in rented apartments. In other words, millions live in homes provided and maintained by investors. Those who advocate diminishing the role of investors should first answer the following question: If not investors, then who will pay for the maintenance and ownership of housing for millions of Canadians?

A partial portrait of real estate investors was released in February when the Canadian Housing Statistics Program (CHSP), an initiative of Statistics Canada, reported on who was investing in housing in Nova Scotia, New Brunswick, Ontario, Manitoba and British Columbia.

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Surprisingly, Nova Scotia (32 percent) was far more (relatively) self-investing than Ontario (20 percent). Unlike Ontario, Nova Scotia doesn’t make headlines accusing investors of exorbitant real estate prices. The likely reason for this is that vacant land ownership is more common in the maritime provinces.

According to the CHSP, condominiums are more of an investment property than other types of housing such as single-family homes or townhouses. For example, nearly 42 percent of Ontario condominiums were investment properties. Additionally, in 2020, 112,220 households in the City of Toronto rented condominiums and another 53,000 rented ground-level apartments from investors.

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Condominium investors may be a problem for some, but we see them as necessary housing service providers, taking on all the risks of home ownership and brokering condominium rentals to (often young) workers who are not yet ready or interested in home ownership. The choice between renting and owning is essentially being made possible for millions of Canadians by investors.

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We must not forget that the risks of ownership can be significant for investors. A recent report by CIBC Economics and Urbanation said that most pre-construction condos that investors bought with a mortgage and rented in 2022 had negative cash flow. This means leveraged investors were earning rents that didn’t cover their mortgage costs, condo fees and property taxes.

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It’s far more comfortable to slam investors and fail to appreciate the risks they take and the costs they incur while providing quality new rental housing that otherwise would not exist. In order for Canada to meet its housing deficit, which runs into millions of homes, investments and investors must be welcomed, not shunned.

Murtaza Haider is Professor of Real Estate Management and Director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They are available on the Haider-Moranis Bulletin website at www.hmbulletin.com.

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